As with so much of the economy over the past year, healthcare IT corporate consolidation has seen a meaningful slowdown. Just as the buyers of software systems are taking a breather, waiting for the economy to improve and, if a buy is necessary, looking for a bargain, so too are buyers of companies. While the number of reportable deals is roughly comparable to last year (and down sharply from the year before that), the size of the checks being written is considerably smaller. Why? Fewer sellers want to go to market in the worst economy in recent memory, and fewer buyers want to take chances or stretch for value.

While the number of meaningful-sized closed transactions decreased, a high level of activity remained, as we were aware of a number of companies that explored selling, only to reconsider when bids weren't reflective of their boards' view of long-term value (sounds a bit like the housing market). Where last year we saw announced sales that topped $1 billion - and a few in the $200-500 million range - this year the largest disclosed transaction was less than $300 million, and the vast majority were significantly smaller tuck-ins.

Good things come to those who wait - When last we spoke, the Allscripts-Misys merger was announced and appeared on track to close, albeit with some shareholder concerns along the way. While there was a bit of last minute excitement due to a financing hiccup from Lehman Brothers' demise (anyone remember Lehman?) which caused a brief delay, the $641 million merger closed and the companies became one; numbers 25 and 10 on last year's list are now number 9.

Keep ‘em talking - The next largest deal that closed in the past year was CBay Systems’ (Number 84 in 2008, did not submit this year) $260 million (0.8x revenues) purchase of one-time industry leader and Wall Street darling, and still larger company, MedQuist (Number 20). While EMRs have clearly not put an end to transcription as some expected them to, valuations have decreased along with growth. But clearly, companies like CBay and Nuance (Number 16) continue to see meaningful value (and, in fact, Nuance purchased yet another speech recognition vendor - a Viennese division of Philips - for $95 million).

As discussed, tuck-in acquisitions are the theme of the year, with McKesson (Number 1) making two small ones, each more of a product purchase. These were EN-Chart Scanning Program (an emergency department coding and charge capture company) and Vivalog (a radiology case sharing application systems vendor). Ingenix (Number 6 in 2008, not included this year), eager to remain the decision-support leader, purchased Bull Services, a sizable business intelligence firm focused on public sector work. Decision support appealed to General Dynamics as well, which acquired the ViPS division from HLTH (Number 15 in 2008, did not submit this year). HLTH, meanwhile, terminated its plans to merge (or was it re-merge?) with subsidiary WebMD citing market conditions.

Go with the flow - General Electric apparently wants to, buying patient flow software vendor Agility Healthcare Solutions for an undisclosed amount. Eclipsys (Number 12), also seeing value in that area, acquired Premise, another patient flow vendor for $38 million. Eclipsys also moved closer to the physician side, acquiring MediNotes (Number 98 in 2008, did not submit this year) for $45 million. Speaking of the physician space, Quality Systems (Number 27) acquired two physician revenue cycle management companies, Healthcare Strategic Systems and Practice Management Partners, while athenahealth (Number 31) dipped its toe in the acquisition pool buying the very small Medical http://Messaging.net to gain some patient connectivity and outreach technology and skills.

Charting a course - Healthport (Number 25), the largest release of information vendor (formerly known as Smart Document Solutions) acquired its largest competitor, ChartOne, for an undisclosed amount and is now really the largest ROI vendor.

PAC(S) it up - PACS and RIS vendor Amicas (Number 55 in 2008, did not submit this year) acquired competitor Emageon (Number 43 in 2008, did not submit this year) for $39 million (around what Emageon itself paid for Camtronics just a few years ago). This was interesting, as Amicas presumably had the chance to buy earlier in the year during the initial Emageon auction that was won by HSS (which was unable to conclude it in part due to shareholder and financing issues). Patience proved the way to buy right in that instance, though two small radiology software vendors combined still make for a small radiology software vendor in a market dominated by the big magnet manufacturers.

Singing the Blues? - MEDecision (Number 57) certainly wasn't, after its largest customer, Health Care Service Corporation (a consortium of four Blue Cross and Blue Shield plans) paid $115 million to acquire it. While 2.5 times revenues was a fraction of its IPO price, it was an astounding 300 percent premium to where MEDecision stock was currently trading. On April 1, 2009, MEDecision acquired HxTechnologies, a small real-time information provider. HCSC remains on the hunt, purchasing Medicare Advantage-focused business process outsourcer TMG Health in October of 2008.

Drug data dances - While not on the HCI 100, but still noteworthy, the two e-prescribing networks merged. RxHub (owned by the pharmacy benefit managers) and SureScripts (owned by the drugstore chains) announced a merger of equals rather than continuing to fight for share and relevance. Another more pharma-focused deal was Wolters Kluwer (which had purchased the drug information assets of NDCHealth a few years ago) acquiring privately held UpToDate, an evidence-based electronic clinical information resource for an amount rumored to be in the hundreds of millions of dollars.

Private equity quiets - Not surprisingly, with fewer sellers and, more importantly, sharply reduced access to capital (“no leverage in leveraged buy-out [LBO],” as one player put it), the private equity players who had been eagerly bidding up assets in earlier years showed hardly any activity. One exception was Great Hill Partners' recapitalization of Passport Health (Number 51). A few other private investors who'd already made some acquisitions in the space continued to seek opportunity. HealthVision's owner, Battery Ventures, purchased small but interesting durable medical equipment (DME) billing software vendor Brightree; and Healthland's owner, Francisco Partners, acquired both time and attendance vendor, API Software and Web-based medical office software vendor, AdvancedMD, both of whose size would likely put them on the Top 100 list.

Charting the future. What's next? - Given that editorial policy prohibits, “Reply hazy, try again” for any contributor but the Magic 8-Ball, here goes: the current economic malaise will persist through at least the third quarter (and that's being optimistic), continuing to put downward pressure on both volume and valuations, which becomes a bit self-fulfilling as the stronger companies decline to enter the market. That said, there are likely to be some opportunistic purchases (and I've always found that value is maximized when companies are bought rather than sold), perhaps as some outsiders to this sector or even from outside the United States, seeking to capture some IT stimulus dollars, come wading in, checkbooks flashing. We would advise sellers to ensure they have a good idea who's likely to buy and why before entering the market, and be prepared for a lengthy and often painful process. That said, this is a sector that thrives on hope and optimism, and a company with differentiated value, products or services will almost always be able to find a buyer which sees the value.